The Administrative Costs of Debt Restructurings

Posted: 10 Oct 1998


I examine the direct costs of 152 exchange offers, prepackaged bankruptcies, and "traditional" Chapter 11s from 1986-1993. Reexamining direct restructuring costs is interesting in light of several recent, and related developments in reorganizing financially distressed firms: prepackaged bankruptcy, failed HLTs, "vulture" investors, and informal pre-restructuring bondholder committees. Prepackaged bankruptcy costs lie between costs of traditional Chapter 11s and exchange offers, but are similar to prior estimates for traditional Chapter 11s. Direct costs are positively related to the percentage of the firm's debt that is restructured, the number of debt classes restructured, and if labor or environmental liabilities are restructured. Direct costs are lower for larger firms, more insolvent firms, if the firm is an HLT, and if a vulture investor holds a block in the reorganized firm. The evidence is consistent with the view of vulture investors as facilitating, rather than complicating, debt restructurings.

JEL Classification: G33

Suggested Citation

Betker, Brian L., The Administrative Costs of Debt Restructurings. Available at SSRN:

Brian L. Betker (Contact Author)

Saint Louis University ( email )

St. Louis, MO 63108-3397
United States

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